Not really facts… more like loosely postulated theories presented with overconfidence

I think a lot about food. I haven't
yet put my food related thoughts down on paper and sometimes the only way to
progress in understanding is to lay everything out on paper. This technically
isn't on paper either, unless someone decides to print out this page, but it's
close enough. I'll start by covering a book that has helped me develop a large
part of my framework for how I think about picking out and eating at
restaurants. One more caveat before I start. This is not a competent book
review. Competent book reviews engage with a book within five years of having
actually read the book. This is more of a reflection on a book that I did at
one point read and whose concepts have continued to shape my thinking about
food over the years.

That book is Tyler Cowen's An
Economist Gets Lunch: New Rules for Everyday Foodies. It's one of the few
books that I've bought a couple times, as I always end up giving it to a friend
or acquaintance (I prefer not to engage in the myth that I'm letting someone
borrow a book, that's just a set up for minor friction and disappointment if
they forget, damage or lose it). It is a combination of an overview of the
economic and social forces that made good food in the United States almost
disappear and a framework and advice for finding the best tasting food in
general.

The economic history portion is
interesting, it delves into the dynamics behind how prohibition killed off the
best restaurants & provides an interesting hypothesis as to how the
child-centric culture in the era of Baby Boomers oriented our food culture
towards fatty, sweet foods and away from more interesting flavorful options.

The history is fun, but more
relevant is Tyler's advice for finding good food (Those in the DC area have the
option to skip much of the work of applying his framework and access his recommendations directly). He uses a combination of
economic and cultural understanding to determine when he is paying for good
food and when he might be paying more for the other goods or services bundled
with food. Some tips in his own words can
be found here.

I will paraphrase the six points
from that article:

1. Order what sounds the least
appetizing, it is on the menu for a reason. Avoid what sounds safe if it is not
the restaurant's specialty, that's just there to mollify people who prefer the
familiar.

2. Be suspicious of restaurants that
are social scenes, especially if it is not a new restaurant that has an extra
incentive to create a reputation for its food quality.

3. Low rent places in suburban strip
malls will have more interesting varieties of food. Places with higher overhead
will be less able to take risks, and when they do provide good food it will
generally have a matching high price. Food trucks share relevant qualities with
suburban strip malls.

4. Ask other people for advice,
particularly people between the age of 35 and 55 who become excited by the
topic of giving advice on where to eat. Searching online for the best
particular dish will give better outcomes than searching for general cuisine.

5. Cheap labor leads to good food at
low prices, expensive labor & superfluous employees means that the customer
is going to be paying for the experience.

6. Food cuisines that Americans are
comfortable with will often be biased towards American taste-buds. A Pakistani
restaurant will generally be more authentic than your average Indian
restaurant. Americans feel more comfortable wandering into an Indian restaurant
and the restaurateurs have learned that Boomer-type customers are happier with
dishes that are blander and slightly sweeter than is traditional. Thai food is
another category that is often targeted at Americans, while Vietnamese food has
yet to catch on and is less likely to be overly fried and sweet in an attempt
to lure Americans who do not have a preference for interesting food.

Besides these tips the book also
explains many of the forces driving where good food is made. It is the demand
for high quality food that creates a good supply. The only Chinese restaurant
in a very white town might be have a highly capable chef, but if his customers
prefer bland, sweet food he will learn to give them what they want. Place this
same chef in the middle of a metropolitan Chinatown and it could be well worth
a visit to his restaurant. Therefore, if you talk to the chef and express
interest in non-Americanized fair, you might be able to convince him to make
you a good meal at the mediocre place. And when we hear the common rule of
thumb to make sure that people of the same ethnicity as the food are eating in
a restaurant we are trying to avoid a dynamic where food is made both more
bland and sweeter in an attempt to attract a Boomer-ish type of
clientele.

Consumer demand driving restaurant
behavior is also the reason why areas with significant tourist traffic will
have more questionable restaurants, as the main skill required of restaurants
in those areas is to convincing people to drop by just once. This is why it is
easier to accidentally find a good restaurant in San Francisco's Sunset and
Richmond district than in its more tourist filled Chinatown.

Most of Tyler's advice on food and
the parts of his framework that I have internalized, probably including
insights which I might not directly remember as coming from said framework,
have served me well. But most rules do not work all of the time and his
suggestions are suggestions and not laws for a reason. I remember right after
reading the particular piece of advice about trying things on the menu that
sound disgusting I tried pig blood curd congee in a restaurant attached to a 99
Ranch (essentially a suburban strip mall with a large flow of Asian customers).
I was rather disappointed. Although now that I think of it, even that dish was
generally pretty good once I took out the pig blood curd. But every so often
things that sound disgusting actually are.

One area that was touched on but
incomplete is how to find good food using online sources. He recommended
avoiding generalizations and using specific searches even if that isn't what we
are interested in. His approach does work, searching for "pig
blood" in San Francisco on Yelp actually highlights a few restaurants I
know to be quite decent. But when we look at the Yelp or Google for reviews and
scores the process of interpreting them is not very direct. Most of the US
review systems ask users to give only one all encompassing score, so many other
factors outside of the food quality are being measured.

For people who are trying to find
the good food at reasonable values using these services, there are some basic
heuristics outside of looking at the number of stars that will help interpret
the results.

Sometimes an almost cheap ethnic
restaurant gets dinged for its relative price, not the quality of its feed. If
the biggest problem is that it is slightly more expensive than its category
suggests it should be, remember your opportunity cost. The $16 ramen, where
half the customers are raving about it and the other half are complaining about
it for costing too much for ramen, will still be much cheaper than other dinner
options. (If this seems particularly high, it should be noted that I live in
the San Francisco Bay Area).

By that same token, the places with
glowing reviews from people who are amazed at large portion sizes should be
treated with a grain of salt.

When a restaurant has a bad score
due to people complaining about service and the goal is to find good food, not
to impress someone with a flawless evening out, then that restaurant deserves
significantly more consideration.

Relatively expensive places, those
which fall under the $$$ and $$$$ categories, often have ratings that are
biased upwards. Many of the people reviewing them did not have to pay for the
restaurant, and even those who did often forget that the baseline experience
for these restaurants should be good food and great service. They do not adjust
their baseline expectations higher. Many of these places actually have great
food worth trying out, but don't trust the average score. Some of the most
mediocre meals out have occured because I was being hosted by someone who fully
relied on the heuristic of "If I spend enough money and go to a place that
is popular I won't get a bad result."

Ratings are also biased upwards when
the owner replies to every or almost every review, positive or negative. Real
negative reviews are scared away by the prospect of having a real person react
to public criticism. Be wary of these places, not only are they skewing what
might otherwise be a useful indicator, they may be more concerned with
perception than reality.

And just to make sure that the
absolute basics are covered, learning about the specialty of the place is
important. There are many places with large menus where it is a mistake to pick
anything but a couple items. Also in the obvious column is looking at the most
recent reviews for signs of deterioration in food ratings or ownership changes.
And if you know the cuisine well then the pictures might be the most helpful
content.

There are other concepts beyond
analyzing reviews that are quite helpful.

Many times the health inspection
score will be easily available when looking up options online. For those who
like to travel, remember that a mediocre health inspection score in the United
States would be a great health inspection score in a developing country. Unless
you know of people getting sick at the restaurant don't be as put off by a mediocre
health inspection score as your instincts tell you to be.

While traveling, it is useful to
understand which countries do another's cuisine well and which ones don't.
Getting Kebab is Germany is a no-brainer, but in Korea it may be mediocre. Thai
food in Vietnam is much better than sushi or Korean. (My perception of bad
Korean might be due to trauma, one restaurant put ketchup in a bottle that was
supposed to contain chili paste for the bibimbap.) US style Mexican food
doesn't seem to travel well past the states that are touching Mexico's border.
In Japan, some cuisines can be reproduced even better than in their home
country, at other places there will inexplicably be mayonnaise on everything.
But the general rules still apply, a local population with high standards which
will eat at whatever restaurant makes the highest quality version of the food
they want is needed for quality food. The more metropolitan an area, there more
likely there will be a significant population of people with standards for the
cuisine you want. So it's more likely you will be able to find a good meal of
most cuisines in major metropolitan areas. But if you took a multi-hour bus or
train ride to get your location then sticking with the local cuisine will be
your best bet.

Another important concept is time
arbitrage, doing things when others aren't. The basic time arbitrage related to
eating out is going out for lunch rather than dinner. If you are able to visit
a good place during lunch hours the time arbitrage allows for obtaining good
food at much cheaper prices. Some Korean places have such a significant price
difference that even though they slightly increase the portion size it feels
like a ripoff to visit them for dinner. The exception to this rule of thumb
would be the places that are designed to make most of their revenue from lunch,
like the nicer sitdown lunch places in a downtown area which might not even be
open for dinner.

Time arbitrage extends beyond just
getting lunch, some places impose higher costs on customers by making them wait
in lines. These lines act as advertisements to the restaurant, and if people
are willing to wait for a restaurant that isn't a social scene of one sort or
another then that is generally a good sign (Remember that urban brunch places
are all social scenes). If you have the flexibility, going out for early or
late dinner on a weekday, as long as you are also avoiding traffic, would be
the best way to experience these restaurants.

By this same token, the place that
is open 24 hours or until 4am when other places close earlier will often be
serving worse food at a higher price. I have found this to be very true with
most Korean places within San Francisco. But there are also definite exceptions
to this rule, there are a few 24 hour burrito places in San Diego that you
should visit regardless of the time.

The only place where it seems that
Tyler's take was wrong, at least as I remember it, was on sushi. In Tyler's
estimation, the only way to be certain of getting a better meal was to spend
more money, as this would be more directly correlated with high quality fresh
fish and perhaps the skill of the chef. Part of the reason this is wrong is
that some expensive places have built up brand names as the place to go for
business dinners and these have dropped in quality significantly. And sometimes
there are restaurants which are far less expensive than the ultra-expensive
places who are ordering similar quality fish from the same wholesalers.
Figuring out which sushi places are ordering from these wholesalers and which
ones are ordering from the same places providing the selection at your local
Japanese supermarket can help a discerning eater determine where to find really
good sushi at reasonable prices (Note: The prices may still be unreasonable
compared to other cuisines).

The restaurant scene is an
inefficient marketplace. If you want good food there are plenty of ways to get
better food at a better price than what most others are getting. But if what
you want is close to a completely normal social dining experience then the
inefficiencies get smaller. You will be choosing to also pay for the
atmosphere, the service, the view, etc. The best you can do is use these
techniques to make sure the food is also good. When it comes to finding good
food at reasonable costs, it helps to be a little weird.

That's it for Part 1. Eventually
there will be a Part 2, where I will introduce a framework focusing on addressing the
tradeoffs that often occur between matters of taste and matters of health.

A lot of people are calling bitcoin and other blockchain
tokens* Ponzi schemes or pyramid schemes. This is inaccurate, what is happening
in the token economy is a new structure with significantly different incentives
for participants.

*For the sake of simplicity, I will use the term token and coin interchangeably. This is far from the most blatant generalization that I will make in this piece.

Ponzi Scheme

One centralized entity attracts investors by pretending
returns are higher than they are. The first few investors might get more than
their money back as proof that the fund is healthy, but those funds were not
made by the firm, they are funds stolen from later investors.

In the end, only the perpetrator of the Ponzi scheme comes
out ahead.

Incentives for
participants to recruit others: Social upside from sharing how to make
money. Little direct incentive.

In recent times:
Madoff’s investment scandal was a classic Ponzi scheme. People believed he had
a way to make consistent returns in up or down markets, but he really used new
investor money to pay out fake returns to old investors.

This wasn’t just a one map shop, there were firms called fund
of funds with an incentive to introduce their clients to Madoff’s Ponzi scheme
as they would make a percentage of their client’s returns. But these funds did
not think there was a Ponzi scheme, though many believed that Madoff was making
his money illegally.

Total size: At the
Madoff’s fund peak investors believed they had $65 billion invested in Madoff’s
fund, but the total amount investors put in was closer to $20 billion dollars.

Legitimate form:
None?

Ongoing Ponzi Schemes:
There is also a famous Russian Ponzi scheme, MMM, which after having collapsed
in Russia it has inexplicably become popular in developing economies. It is
primarily a Ponzi scheme in which money is put into the system and is paid out
only when newcomers put in more, but the scheme has set up some incentives to
recruit other people that cause some to label it a pyramid scheme.

What to look for: There
may be many small ongoing frauds of this nature. Investors should always do due
diligence when a scenario seems too good to be true. Understanding the strategy
and making sure the fund has a respectable auditor can help avoid some of these
schemes. More generally, funds trading very illiquid asset classes in which
they are the main participants might act as accidental Ponzi schemes. If investments
from one source are driving up the market value of the fund, and fees are being
paid out on this increased value, then the scenario may act exactly like a Ponzi
scheme.

Pyramid Scheme

In a pyramid scheme, the person at the top benefits from everyone
below him in the scheme. The people below the top person are incentivized to
recruit other people below them to increase their payout.

Incentives for
participants to recruit others: Incentives are siloed, someone recruited by
the top guy doesn’t care if a person he did not recruit is successful, he
shares no gains in the scheme’s success except to the extent that he is
directly introducing new people into the scheme.

In recent times:
Bill Ackman’s fight against Herbalife has been one of the most publicized looks
into whether or not a company is a pyramid scheme. His presentation can be
found here.
As of January 7, it still has a market capitalization of $6.1 billion.

Legitimate form: Multilevel
marketing companies, in which companies recruit consumers to both sell products
and recruit other people to sell products have varying levels of legitimacy. To
the extent participants make most of their money by selling goods that generate
significant consumer surplus the company can be said to be a legitimate MLM
company. Some people suspect that Bill Ackman’s mistake in going after
Herbalife was in not understanding the benefits from communities enabled by
Herbalife’s MLM system. Despite some questionable practices and relatively high
prices the MLM system is creating significant consumer surpluses.

Total Size: The top
ten multilevel marketing companies, from Amway to Tupperware, had a
combined 2017 revenue of a bit over $40 billion dollars.

What to look for:
The more money that is sourced from recruiting additional people and selling to
those recruits, the more likely it is to be pyramid scheme.

Token Scheme:

The blockchain tokens that we have seen recently have a
significantly different dynamic from Ponzi and pyramid schemes. In a Ponzi
scheme, it’s only the guy pulling off the fraud that really benefits from
attracting more people. In a pyramid scheme, each silo is separate, and people
below someone in a pyramid scheme do not typically get any advantage from that
person becoming more successful.

Incentives for
participants to recruit others: In a token scheme, everyone is paddling in
the same boat. Early adopters take ownership of space on the ledger,
represented by tokens, and lobby everyone to buy more. Wealthy latecomers,
rather than being stuck at the bottom of the pyramid, can choose to take on a
more significant stake if they invest the capital. And when that capital is
invested and drives up the price, the existing holders all win. Each of the
newcomer’s tokens has the exact same status as the tokens of the early
adopters, and everyone is expected to work together to push up the value of the
systems that they have bought into.

When individuals start
to think that the value of the network is going to fall and internal collective actions cannot prevent it they are
incentivized to be the first to jump ship without letting the others know they have
decided to defect until after they have exited.

The incentive structure enabled by token schemes are very
powerful. They can be used to incentivize people to all contribute towards a
central project, like the people building on Ethereum and other projects where many
talented people are trying to develop useful decentralized system. Token scheme incentives are
also the driving force behind many obvious scams.

This type of environment created by token schemes forms cult-like behavior. The
early believers are told to “HODL” (buy and hold) and
not sell any of their tokens into the market, helping drive up the price as new
entrants are only able to purchase token that are being flipped. The general
community reaction to critiques of any of the token schemes is to accuse the
critic of spreading FUD (Fear, uncertainty and doubt), like the way a priest
might accuse a scientist of heresy. And a market that has gone up over 1000x
has only strengthened these dynamics.

The analogy to stocks:
Many observers view blockchain assets as analogous to stocks. The might
interpret a coin’s market capitalization, the amount of coins outstanding
multiplied by the most recently traded price, and view it through the lens of a
company’s valuation. In the case of the healthiest blockchain projects, there
are companies and individual engineers putting in lots of work to develop and
update the codebase or build products on top of the existing infrastructure. The
token itself retains its fundamental value so long as the projects that will eventual create value remain on
top of the token’s blockchain ecosystem.

While a decentralized blockchain generally does not convey
ownership of real assets the way that owning Exxon’s stock conveys partial
ownership of oil producing assets around the world, there is a closer analogy
to technology companies. Technology companies derive most of their value from
their intangible assets and not their real assets. Investors in technology
companies worry that they will lose their best employees who are creating value
within the company or that employees who leave might create or enable competitors, so they incentivize
the employees with stock options and hope their employees believe that their
compensation combined with helping the company achieve its mission is enough to keep working. In the case of blockchain, the main thing keeping
technologists working on a token that is not directly tied to a company is their personal token holdings in place of options, and the goal of achieving their project's vision in place of their company's impact.

But unlike stock, tokens do not have the same type of end
game. A company like Whatsapp can be acquired for $19 billion, there is no
equivalent liquidity event that can reward token holders. Liquidity events only
occur when new money enters the system and token holders chooses to leave
instead of letting new money push the price up to even higher levels. While
they do not have an endgame, tokens have a much quicker mid-game, as many blockchain
programmers are able to cash out in the seven to eight figures thanks to the extreme
price appreciation of the major tokens. Start ups have historically been wary
of letting employees cash out life changing amounts too early in the
development process, as the employees may be more tempted to work on their own
projects when they have sufficient capital to choose to work on anything they
want. But even if some contributors drop out to due to options from their
wealth creation, this scale of wealth creation attracts new workers looking for
similar upside. Some companies have started vesting tokens to employees over time in way
similar to how companies grant employees stock options. The longer-term
stability of these projects is only threatened once token price appreciation slows
down significantly, and that’s a situation that tech companies without traction
also face. The bigger risk for the ecosystem is that if obviously bad tokens are rising with the good tokens, then the good tokens can later fall when the price of bad tokens crash.

Thinking about token market capitalization can be misleading,
and not just because acquisitions aren’t as feasible in token-space. Blockchain tokens
can be almost permanently lost in ways that stock is not lost. The lost tokens
are still counted towards the market capitalization even when their permanent
absence from the market is one of the factors driving the price of tokens
higher. Despite being potentially misleading, there does not seem to be a
better readily available metric or name. There are significant differences when
talking about a company’s market capitalization and it should not be confused
with a coin’s market capitalization. That Ripple’s company is valued at a
couple billion dollars when its coin holdings are supposedly worth well over
$50 billion is illustrative of that difference.

The analogy to
currency: Many people think the main use case for blockchain is
decentralized currency, or a decentralized store of value. In the case of
traditional fiat currencies, the demand for money is likely to stay within an order
of magnitude of the expected range as each currency is tied to the economic
activity of a geographic region. The local state collects their taxes in their
own currency, ensuring demand. Over the long term the question is if the supply
of money will get out of control as it did at times in the Roman Empire and the
Weimar Republic or more recently in Zimbabwe and Venezuela.

For blockchains like Bitcoin, the targeted supply at a given
date can be forecasted with relative accuracy. The bitcoin outstanding will
increase by about 4% in 2018.
The total amount will never be more than 21,000,000. It is the demand that is
the unknown factor. Morgan
Stanley estimated that hedge funds put around $2 billion into the token
economy in 2017. The amount from institutions and people not tracked by Morgan
Stanley was likely much larger. 2018 may be even larger, but it is an open question
if the money flow can continue to increase through 2019 and 2020. If the miners
sell every bitcoin they mine in 2018 and everyone else holds bitcoin, there
needs to be around $10 billion in new investment at current prices to keep
prices stable. For reference, a calculation done at the start of 2017 would have found that $700 million dollars would be needed to keep bitcoin at approximately the same price. Continuously growing demand is dependent primarily on continued high
prices and benign neglect by governmental agencies who may be concerned at the law
breaking behavior enabled by various blockchain networks. The networks currently using the
protocols could be as stable as Google, but many could just as easily be Friendster
or Myspace.

For fiat currencies, the demand is certain and future supply
drives price uncertainty. For blockchain, the supply of a specific blockchain
is known, the demand is unknown. There may be uncertainty on the supply side.
Alternative blockchains and forks effectively add blockchain assets to the
ecosystem. Bitcoin has forked quite a few times, and to the extent that
investors deploy money to forks, such as Bitcoin Cash or Bitcoin Gold, the
supply of blockchain assets can also be said to be increasing. However, this
interpretation is not how the market reacted to forks. The price of Bitcoin on
announced forks generally stayed level or increased, as if the forks merely increased
demand and did nothing for supply. Many people even started equating forks with
dividends. This dynamic of assuming the increased supply from forks and
additional blockchains being accretive in value to existing blockchains does
not seem sustainable.

Size: Currently
over $800 billion across the publicly tracked tokens. (It would be very interesting to find estimates for total capital committed)

What to look for: First,
there are the obvious scam signs.A whitepaper
might include significant plagiarized work, promotional material making false
or illegal claims and people who attached to the project being attached to
other types of scams are all giant red flags.

Sometimes things aren’t quite scams, just unlikely to be
good investments going forward. The most obvious example is the companies who
change their name to something blockchain related hoping to attract fast money.
More subtle case involve scenarios where the token itself is incidental to the
process seen as valuable (as seems to be the case with Ripple),
or companies selling a blockchain token it retains full control over to do a
task that a distributed database would do the job better. In the case of Doge
coin, a token designed as a joke, the market capitalization hit
$1 billion despite it being abandoned by its creator.

Just as legitimate MLM companies adopt aspects of a pyramid scheme
to make something useful, there are some token schemes that have the potential
to create real consumer surplus. Some of these projects might even be designed
to facilitate legal activity in ways that are more efficient than what trusted institutions
are currently doing. And some of those projects might even have a legitimate
reason that their tokens should appreciate in value outside of a speculative
mania.

When it comes to understanding the dynamics behind
blockchain tokens, even the blatantly useless or fraudulent ones, it is important to
realize that they cannot be fully understood by analyzing Ponzi or pyramid scheme dynamics.
They are token schemes that have their own unique and much more powerful dynamic.

Net neutrality is not something people
who prefer a free market economy would support apriori. It goes against the
idea that businesses should be able to compete how they see fit. If a business
wanted to lay fiber and give away cheap internet on the condition that their
social network, streaming service or Amazon referral links are used, then in
theory that should be okay. But we don’t have a competitive open market with
many different players. The internet service providers have relationships with
municipality governments that help them deploy fiber to their residents. Sometimes
the municipality keeps the ISP’s competitors out due to relationships between
local officials and ISP lobbyists, other times it is due to bureaucratic indifference
or incompetence. It takes a concentrated effort to avoid the accumulation of cumbersome
rules and regulations that cause the high costs and slow deployment times that
will keep ISPs out of an area that already has a competing provider. Either
way, ISPs often achieve monopoly power over their local markets. A 2013
report from the US Department of Commerce shows very oligopolistic
competition at best for providers at speeds over 25 Mpbs, and almost no
competition above 100 Mbps.

Given time and an incentive to increase their revenue
quarter after quarter, companies will attempt to extract additional rents from
their position as the gatekeeper consumers and online businesses. Net neutrality
rules force ISPs to act as dumb pipes to the internet will prevent these local
monopolies from using their government-backed power to pick winners and losers
on the rest of the internet. In our
status quo of regional internet service provider monopolies and oligopolies,
some form of net neutrality is a desirable compromise.

The 2015 Title II Order by the FCC which was an
implementation of net neutrality in the United States is seen by many as a regulatory
overreach. It wasn’t because their general framework was that far off, but it
was quite a stretch to independently label ISPs as public utilities under
authority used to regulate telephone monopolies in the 1930s. This type of
significant rule change without congressional input is worrisome for those who
want the responsibility of lawmaking to fall upon an elected legislative body. We
shouldn’t look to the FCC to implement these rules on their own, the rules
should be spelled out by a congress that is concerned with protecting
interstate commerce from companies who are empowered by barriers to entry put
up by local governments.

One thing that might get lost in this process is the
implementation of internet service providers with unique business models. It would
be best if room for experimentation was left open in areas where there is
already significant competition between multiple providers at high speeds. Then
we might see if consumers will be willing to forgo their dumb pipe options in
return for a lower cost service. This is the last thing that major tech incumbents
want. This approach might allow emerging tech companies buy their way into customer
scale, or it might force to major tech companies to spend more to entrench
their positions. Either way, the ISPs might be able to figure out ways to make
a little more profit while their customers find additional consumer surplus.
The key is that the ISP is trying out these innovative business plans in scenarios where
the consumer has other reasonable options.

Criminals are generally pretty stupid. Especially the type who go after property theft directly. They face a high chance of getting caught and spending years in jail, and their take is generally pretty small. Invading Mariah Carey's house only netted them assets valued at $50,000. These assets were in handbags and accessories so they will be lucky to get anywhere close to half of that value on the black market. If they had found the jewelry they might have made quite a bit more, but most of the assets held by the wealthy can not be easily appropriated.

There is a reason movie stars are being targeted instead of financiers and entrepreneurs. The exact reason depends on how stupid these criminals actually are. The stupidest reason is that movie stars are widely known to be rich. A slightly better reason may be that movie stars are more likely to have assets in tangible goods such as expensive jewelry in their homes. And perhaps the criminals prefer to only invade empty homes, so society's collective stalking of celebrities allows the criminals to identify periods when no one is home.

As mentioned above, targeting celebrities for tangible assets can make some sense. Old money, entrepreneurs and financiers have most of their assets in stock, registered bonds, property titles and the like which cannot be easily transferred without the consent of owner and the implicit consent of the rest of society. Because even if a transfer is forced, these transactions can be reversed and would be easy to track. Some of the more eccentric wealthy might have precious metal or cash lying around, but it's difficult to know ahead of time which people are eccentric in that manner. If there is any valuable art which might be snatched, the criminal needs to consider that the art is valuable precisely because it is unique and again it cannot be transferred for anywhere close to full value. It will always be known as a stolen piece, art stolen as far back as the Holocaust is still being recovered today. Other valuable assets like fine wine might appear to be a liquid asset*, but they too can be tracked. For the celebrities that some criminals are targeting, there is no way the thieves are ever getting access to the financial assets they bought or their residuals and royalties, but the celebrities are at least known as someone who keeps around expensive handbags and jewelry.

Fortunately for criminals, there are now many people holding immense amounts of wealth that is liquid and hard for governments to track. Currently, that is the main active use for blockchain technology. Some sophisticated criminals are already taking advantage of this, with the rise of ransomware. Ransomware is a computer virus that encrypts a user's data and does not grant access to it until a certain amount of cryptocurrency is sent to the attackers. Researchers have tracked most of this activity back to a Russian cryptocurrency exchange.

While crypto assets requires some expertise to properly dispose of, it provides exactly what local criminals looking for high risk/high reward opportunities should want. If someone owns millions of dollars in crypto those assets can usually be transferred relatively anonymously. This is a higher risk proposition, in which the criminal needs to kidnap and threaten the holder of crypto assets directly. But it is striking that crypto has created for local criminals what was before only a pipe-dream, effective access to significant amounts of their victim's wealth. It might be compared to initiating a wire transfer, but a wire transfer has significantly more complications with regards to who is contacted to initiate it and how to evade safeguards in the financial system. The promise of bitcoin is that the process is simpler, faster and easier to manage.

Criminals are stupid, but they learn eventually. Home invasion robberies are rare, but incentives matter. At least some people have decided to burglarize the homes of celebrities who already have security measures to protect themselves from stalkers for much less upside.

This is just a long winded way of telling my friends who talk a lot about their ownership of crypto assets online to be sure to periodically remind everyone that they keep most of it in cold storage locked up in their bank's safe-deposit box or other safe place away from their homes and family. Because incentives matter, even for stupid criminals.

A recent New York Times article tells
the tale of two janitors. One at Eastman Kodak in the early 80's had their
education paid for and later worked her way up to CTO, later going on to be a
senior executive at other companies. The other is at Apple today and doesn't
even directly work for Apple. She has minimal benefits and no obvious path for
career advancement. That's in large part because she works for a company that
contracts out her labor and not for Apple directly*.

The
narrative the Times advanced is that companies chose to focus on their core
competency and have outsourced other work. Most modern tech companies have
decided to focus on their most productive employees and are letting contractors
deal with the supposedly interchangeable employees working on low skill
problems.

What
many people don't see is that this is not an economic relationship that has
sprung out of thin air. A lot of it can be interpreted as a company's logical
response to the regulatory environment. There are at least three different areas
that incentivize companies to keep low skilled workers at arms-length, only
hiring them through secondary employers. There are laws around unionization,
legal risks from the Equal Employment Opportunity Commission and the Affordable
Care Act has made the choice even more clear from a cost perspective.

At
first glance, it's obvious why laws about unions would cause companies to
choose to contract their labor. For companies that are innovating quickly,
becoming unionized raises the spectre of what happened to Detroit auto
companies. The long term accumulation of rules and resistance to automation
that would cost jobs helped cause the Big Three to fall far behind their more
nimble competition from Japan. As Steve Babson puts it in "Working Detroit:
The Making of a Union Town"

"The
absence of union factory rules gave Japanese management the flexibility to
change workloads and reassign jobs without opposition but it also left workers
with little protection against speed-up of favoritism."

Today's
tech companies need to move fast and keep up with a quickly changing technology landscape, so their
instinct is to avoid unionization. How do they do this? First, they spoil their
workers more than any union ever did. Companies provide meals, social events,
gym memberships and some tech companies even do laundry for employees. This is
a multi-purpose policy, not only do these perks discourage talk of
unionization, they are also meant to encourage employees to spend more time at
work and make them less likely to leave the company even when they are being paid significantly under their market price.

But
keeping the higher skilled employees is only part of the equation. The second
is keeping employees that are likely to unionize outside of the company. Low
skilled workers are most likely to form unions. Unions might possibly strike
and upset the sympathetic high skilled employees. The laws empowering the
National Labor Relations Board grants union employees specific protection. But
those protections stop when they target employers other than their own. From
the NLRB FAQ:

"A
union cannot strike or picket an employer to force it to stop doing business
with another employer who is the primary target of a labor dispute."

After
looking at this rule, it should be obvious why companies would want to avoid
giving employment status to a class of workers that are unionized or might
decide to form a union in the future. By hiring these workers through another
employer, they are shielding themselves from the more inconvenient aspects of
labor law.

Next
we have the Equal Employment Opportunity Commission. The EEOC does not only
look for employers who are discriminating in hiring based on age, race, sex,
etc. They will also punish treatment of employees based on these factors. If a
corporation wants to treat some employees as first class employees with more
benefits and another group as second class, they would have significant legal
risk when the second group consists of employees that are more likely to belong
to a protected class. (And the Times piece does mention how there are legal requirements that employees are offered the same health insurance and 401(k) benefits.) The EEOC will be collecting pay data by sex, ethnicity and
race. Under this scenario, it will look a lot better for everyone involved to
continue contracting out the low paid jobs.

On
top of all of this we have the Affordable Care Act's impact on full-time
employment. The ACA puts the burden of providing healthcare fully on full-time
employers while leaving part time employers and contract workers almost
completely off the hook. The question of who should be responsible for
healthcare payments is a political question, but it should be applied equally
to all types of employment relationships. Two part-time employees working 20
hours a week should cost an employer the same as a single full-time employee
working 40 hours a week. That's not the case today, the 40-hour workweek
employee is more expensive. And rather than be the bad guys who are hiring part
time workers to avoid paying for health insurance, it is easier for
corporations to pay another company to hire and manage workers in this manner.

When
designing and implementing policy, it's hard to account for the long-term
impact. In this case, the incentives created by multiple regulatory bodies have
combined to raise the risk and cost of full-time low-skill employees. They are
highly incentivized to hire another company to shield them from a direct
relationship. Laws that were originally intended to protect people and keep
society integrated might be serving to bifurcate it even further.

*On top of the low wage she pays inordinately high rent to live in
the area. A significant part of the struggle of low wage workers in the Bay Area
comes from the lack of affordable housing. Most people should realize by now
that this is an artificial hardship imposed on the poor by voters who think
they are preserving the character of their neighborhood, preventing sprawl or
protecting the environment. In reality, the main concern of voters is boosting
the value of their house after they have locked in the amount of taxes they
have to pay thanks to California’s Proposition 13.

There
is a social phenomena called Pulling up the ladder. The basic idea is that when a person or group
has success in a certain way, they advance policies that prevent people from
having the opportunity to succeed in a similar manner.

Pulling up the ladder
is seen in NIMBYism. Established residents who built their houses in a
neighborhood pull up the ladder when they decide that extra rules and permits
are needed and that no one else should be allowed to build a home in their neighborhood as easily or as cheaply as
they did. Pulling up the ladder is seen when practitioners promote occupational licensing that forces new entrants to go through thousands of hours of
training and low paid apprenticeships, but grandfather in current practitioners who
do not have to follow these burdensome rules.

Bill Gates provides us
with an egregious example of pulling up the ladder in a recent interview
with QZ.com when he
advocates for the taxation of any robots that replace human jobs.

Certainly there will
be taxes that relate to automation. Right now, the human worker who does, say,
$50,000 worth of work in a factory, that income is taxed and you get income
tax, social security tax, all those things. If a robot comes in to do the same
thing, you’d think that we’d tax the robot at a similar level.

...

There are many ways to
take that extra productivity and generate more taxes. Exactly how you’d do it,
measure it, you know, it’s interesting for people to start talking about now.
Some of it can come on the profits that are generated by the labor-saving
efficiency there. Some of it can come directly in some type of robot tax. I
don’t think the robot companies are going to be outraged that there might be a
tax. It’s OK.

First, anyway you cut it, this is just
really bad policy. Companies utilizing robots should be taxed with the same rules as every other company. Tax theory is not something that can be covered in a
short blog post, but there are two frameworks that make it easy to see why this
is a bad idea.

One framework favored by some economists is that taxes should be designed to force people and organizations to
internalize negative externalities. This is called a Pigouvian tax. If a certain behavior is not good for society,
then raising its price will reduce the harms to society while generating
revenue. This type of approach is exemplified by those pushing for a carbon tax.
Carbon is identified as harmful, and raising the price of release carbon into
the atmosphere will likely result in less carbon released into the atmosphere
(improperly implemented, it also incentivizes more manufacturing in countries
that do not have carbon taxes). Cigarette, alcohol and sugary drink taxes are
often justified under a similar approach, as consumption of unhealthy goods
can create significant costs for the healthcare system*. The flipside
to this logic is obvious. Taxes should also encourage, not discourage, desirable behavior. A tax designed to explicitly raise the cost of research and
investment relative to other activities would be a very bad idea.

Another framework is that taxes should avoid unnecessarily distorting economic behavior. Even economists who promote Pigouvian taxes would agree that a tax that changes behavior without purposefully targeting a desired externality is a poorly designed tax. Taxes that can be avoided with additional work from lawyers and accountants are particularly inefficient. Resources devoted to getting around the tax may
make sense for individuals and companies, but are a deadweight loss to
society. The value-added tax, other than encouraging
exports to countries without value-added taxes, is both easy to enforce and does
not skew behavioral incentives significantly. It is therefore widely used
across the developed world outside of the United States.

So it’s pretty obvious
why trying to apply an additional robot tax on companies would be a bad idea. Measuring whether a robot
is taking a job is not a simple task, and companies will be incentivized to
make the use of automation unrelated to any losses of jobs. The tax would cause significant amounts of new inefficiency as companies on the verge of automating significant tasks would spend lots of money trying to figure out how to minimize or avoid the robot tax.

But even worse, taxing the implementation of robots in
existing companies would slow down the adoption of new technology.If implemented
only in the United States, the robot tax would also cause U.S. companies to fall behind
places in the world where the implementation of robots was not discouraged by
taxation. If the United States wanted to permanently relinquish its status
as the country at the forefront of the production-possibility frontier,
this tax would be a great way to start.

What makes Bill Gate's
suggestion particularly egregious is that the source of his wealth came from
the widespread distribution of labor saving technology, software! The following
is from the BLS summary of Occupational changes during the 20th century.

Imagine what would
have happened to Microsoft if every time it sold a spreadsheet tool it had to pay
a tax for the number of bookkeepers it replaced. Or if all users of Microsoft
Office were taxed for the secretaries and typists that were no longer needed. If the United States applied the policies Bill Gates now suggests now
to software in the 1980's, the digital revolution would have been strangled in
its infancy and Bill Gate would not be in the position he is in today. Specifically taxing companies that implement cutting edge
labor saving technology is silly. It wouldn't have been a good idea then and
it's not a good idea now.

Bill Gates has led a
unique life over the past few decades so he might not realize this, but our society could still be a
whole lot richer. It is still far from wealthy enough to
implement any reasonably sized universal basic income. Safety nets, retraining
and regulatory reform have
important roles to help workers displaced by our fast evolving economy. But the
last thing we want to do is implement taxes that slow down innovation or encourage
innovative companies to locate its business outside our borders.

So please ignore Bill
Gates when he blithely suggests that anyone using robots to replace labor should have
to pay extra taxes. Not only is he advocating for pulling up the ladder behind
him, listening to him would impoverish our future. Our society cannot afford to treat labor saving innovation like a negative externality to be taxed.

*Somewhat morbidly,
unhealthy behaviors that shorten life expectancies actually seem to reduce total costs on
the healthcare system.

On January 30th, the
White House issued a new executive
order targeting regulatory reform. The rule has been promoted, by both the
White House and the media, as the rule that forces regulatory agencies to get
rid of two rules for every new rule they issue.

Both Canada and the UK have
used one-in, one-out rules, with the UK switching towards implementing two for
one. The statement below is from a policy
paper by the Conservative and Liberal Democrat Coalition government in
December 2012 as they switched one One-In, One-Out (OIOO) to One-In, Two-Out.

It is clear that the OIOO rule has delivered a
profound culture change across government as demonstrated not only by the
continuing increase in deregulatory measures but also in the high number of
Departments in credit at the end of the OIOO period.

Building on this culture change, Government is
now pressing Departments to deregulate further and faster to free up business
from unnecessary red tape and deliver growth. From January 2013, our rule is
doubled to One-in, Two-out (OITO). The Red Tape Challenge will continue to be
an important vehicle for Departments to reduce regulatory burdens and identify
OUTs.

Given the UK’s
experience, it makes sense that Trump is starting with two for one. He is not a
man of half measures.

But the number rules are
not the most important aspect of this policy. A single rule could have a
miniscule impact, and repealing two of them might not matter if the new rule
imposed gigantic costs. The executive
order does not overlook this:

“In furtherance of the requirement of subsection (a) of this section,
any new incremental costs associated with new regulations shall, to the extent
permitted by law, be offset by the elimination of existing costs associated
with at least two prior regulations”

Trump essentially told
the agencies that he is capping the costs they are imposing on the economy.
They can reduce costs by being more efficient, or by prioritizing their rule
making around the most important problems. He is giving every agency a
regulatory budget.

The idea of a regulatory
budget is simply applying the concept of a budget to regulations. If applied
correctly, government agencies are only be allowed to impose a certain amount
of cost on society regardless of their net benefit. As agencies are eager
to remain relevant and fix the greatest problems of the day, they will be
incentivized to remove or remake some of the costlier rules. The benefits of
regulatory policy are not ignored, they are taken into account by the amount of
cost each agency is allowed to impose on the economy. Trump’s executive order
is designed so the regulatory budget of agencies will be increased or decreased,
as needed.

During the Presidential budget process, the
Director shall identify to agencies a total amount of incremental costs that
will be allowed for each agency in issuing new regulations and repealing
regulations for the next fiscal year. No regulations exceeding the
agency's total incremental cost allowance will be permitted in that fiscal
year, unless required by law or approved in writing by the Director. The
total incremental cost allowance may allow an increase or require
a reduction in total regulatory cost.

While the order looks
sound, implementation will be key. First, there is the question of how these
costs are measured. The direct cost of paperwork and compliance are not the
only costs imposed by regulations, there are also indirect
costs that are difficult to take into account but which are often larger
than the direct costs.

Second, there is the
question of prioritizing the right rules to cut. Right now, this order has
implemented partial regulatory budgeting, probably the best that can be done
without support from Congress. The costs that the agency can impose, along with
the number of rules, has been capped. And while we know the total number of
rules issued by each agency, we do not yet know the costs and benefits associated
with each rule. Only some rules have been analyzed, and many of those analyses
are out of date. Agencies enforcing many costly rules with few real benefits
should be made to cut much more than two for one, while agencies providing
significant benefits in excess to their costs might be given increase in their
regulatory budgets. This is an
approach favored by Cass R. Sunstein, one time head of Obama’s Office of
Information and Regulatory Affairs.

It is important to
remember that regulatory budgeting isn’t some new crazy idea. Canada
and the United Kingdom have applied regulatory budgeting. In British Columbia,
the Deregulation Office used a regulatory budget approach to cut the number of requirements
to 55% of their 2001 level. This is made easier in Canada and UK because the
ruling party of coalition in a parliamentary system can change the law. In the
US, when an agency gets rid of an outdated and costly rule, they may run into
legal obstacles if that rule was legislatively mandated.

It would be best if the agencies
were operating under the explicit orders or Congress and the Executive branch
to create real change. This isn’t just about rolling back inefficient
regulations, it’s also about making the government work far more efficiently. It’s
a good start.

With the election over and Donald Trump's team taking control of the administration, one government agency that people on the right should be worried about is the Federal Reserve. This is an independent institution that is capable of destroying the GOP in the midterms, it can make the reelection of Donald Trump in 2020 very difficult. The irony is that many conservatives, even those who are supportive of both Trump and the GOP, are concerned about the Fed for the wrong reasons and would like to push the Federal Reserve towards policies that will result in electoral losses for Trump and the Republican Party.

Conservatives have historically preferred tighter monetary policy than liberals. Looser monetary policy, in the form of lower interest rates and higher credit creation, can look helpful in the short term while leading to harm in the longer run. The long run harm can be the capital misallocation predicted by Austrian business cycle theory and other theories. It could be the higher probability, however miniscule, that the central bank will eventually be used to monetize debt and spur hyperinflation. Or might just be the simple risk of inflation expectations among the public suddenly becoming unanchored, leading to a return of 1970's style stagflation.

Worries about too loose monetary policies are often well founded, particularly when inflation is getting out of control. But our current environment is one in which inflation has remained subdued for many years. The Personal Consumption Index Price Index remains well below the Fed's target of 2%.

The Federal Reserve has recently started to act more boldly in hiking rates to normalize monetary policy. It is worrisome that they are acting on forecasts that have been consistently wrong in the same direction. Looking at their end of the year December projections for GDP growth, they have had to continually revise down their growth estimates throughout this cycle.

They are acting before there is any real inflation and without strong evidence that this time their forecasts of renewed growth and inflation are correct after being wrong for so long.

The Federal Reserve is tightening policy more than other countries around the world, which has led to a very strong dollar. The US trade weighted dollar index is the strongest it's been in 10 years.

Many economists are already concerned that programs which encourage exports while discouraging imports will strengthen the dollar and counter some of their potential impact. When we combine that with an aggressive Federal Reserve, the impact of positive steps taken to boost exports can be significantly countered by a strengthening currency.

And tight monetary policy doesn't just strengthen the dollar, it can hasten a cyclical downturn that turns people against the party in control of government. In the early 90's, George H.W. Bush lost for many reasons. But he would not have been vulnerable if the Federal Reserve wasn't hiking rates into his re-election campaign. Perhaps more significant was what was happened in Argentina, where market friendly economic reforms of the 90's were reversed after conservatives drove their country into a depression caused by the Peso's peg to a strengthening dollar through the late 90's and early 00's. They could have unpegged the peso at any time, but they were too busy fighting the last battle against hyperinflation to implement a more reasonable monetary policy.

Trump has mentioned previously that he wants to get rid of the low interest rate environment. If he appoints nominees who are too quick to move in that direction, raising rates before growth and inflation warrant action, it could counteract any economic growth generated by his supply side reforms in the short and medium run. And if that causes electoral losses, the reforms themselves could be reversed and no long run benefit will exist either. As Scott Sumner has said, monetary policy is the Achilles heel of the right.

This week we celebrate Hanukah, the miracle of the one-day supply of oil lasting eight nights. It also commemorates the rededication of the Second Temple. It is a wonderful holiday that provides Jewish children with a winter holiday full of presents, rituals, songs, comfort food, games and family time. It is a holiday that is more fully embraced by Reform Jews who want to provide their children with a Christmas-like holiday than by the more observant Jews. Orthodox Jews still see observing the celebration as an important mitzvah, but Hanukah is not among the most important holidays. Rosh Hashanah, Yom Kippur, Passover and even observing the Sabbath are all more significant.

The miracle of the oil and the rededication of the Second temple came about thanks to the Maccabees. In Hebrew school, I was taught that the Maccabees were the guerilla warriors who fought against the Seleucid empire. It is easy and fun to root for the ingroup against the outgroup. But it wasn't just a war against the Seleucid empire.

The other group that Maccabees fought against were the Jews who were adopting Hellenistic Judaism. According to I, Maccabees, Mattathias, the leader of the Maccabees, started the rebellion by killing a Hellenistic Jew. Hellenistic Jews were the Jews who tried to adopt the local customs. The Maccabees who opposed them wanted to keep the congregation strictly separate from all foreign peoples.

It is somewhat amusing that one of the most popular holiday of Reform Jews is one which celebrates the results of a civil war in which a historical parallel to Orthodox Jews slaughtered the historical parallel to Reform Jews.